Market Analysis

Beyond the Numbers

Stimulus Uncertainty, Renewed Coronavirus Concerns May Weigh On Wall Street
10/15/2020 8:54 AM

The major U.S. index futures are pointing to a sharply lower open on Thursday, with stocks likely to extend the downward move seen over the two previous sessions.

Renewed uncertainty about a new stimulus bill is likely to weigh on Wall Street after Treasury Secretary Steven Mnuchin suggested a new relief package is not likely to pass before next month’s elections.

Senate Majority Leader Mitch McConnell has also cast doubts on whether a bill can pass before the elections and recently announced plans to vote on a more limited relief package.

A surge in new coronavirus cases across Europe as well as tightened restrictions to battle the second wave of infections is also likely to generate negative sentiment.

Europe now has over 7.2 million confirmed cases of the virus, according to the World Health Organization.

The European Commission warned that EU governments were unprepared for the new surge of Covid-19 infections and urged states to adopt a common strategy for the new phase of the pandemic.

“While the evolution of the pandemic is getting back to March levels, our state of preparedness is not,” said European Commission Vice President Margaritis Schinas.

Stocks futures saw continued weakness following the release of a report from the Labor Department showing an unexpected increase in first-time claims for U.S. unemployment benefits in the week ended October 10th.

Stocks moved mostly lower over the course of the trading day on Wednesday, extending the pullback seen on Tuesday. The major averages slid firmly into negative territory after showing a lack of direction in early trading.

The major averages ended the session off their worst levels of the day but still firmly in the red. The Dow dropped 165.81 points or 0.6 percent to 28,514.00, the Nasdaq slid 95.17 points or 0.8 percent to 11,768.73 and the S&P 500 fell 23.26 points or 0.7 percent to 3,488.67.

The weakness that emerged on Wall Street came following comments from Treasury Secretary Steven Mnuchin offsetting recent optimism about a new stimulus bill.

In remarks to the Milken Institute Global Conference, Mnuchin said getting something done on a new stimulus bill before the election "would be difficult."

"We continue to make progress on certain issues, but on certain issues we continue to be far apart," Mnuchin said about negotiations with House Speaker Nancy Pelosi.

Ahead of Mnuchin's remarks, Pelosi's deputy chief of staff Drew Hammill said the Speaker and the Treasury Secretary had a "productive" phone call earlier this morning.

"One major area of disagreement continues to be that the White House lacks an understanding of the need for a national strategic testing plan," Hammill said on Twitter.

He added, "The Speaker believes we must reopen our economy & schools safely & soon, & scientists agree we must have a strategic testing plan."

Hammill noted Pelosi and Mnuchin would speak again on Thursday, although the Treasury Secretary's comments have partly offset optimism the negotiations will bear fruit.

A negative reaction to the latest batch of earnings news also weighed on Wall Street, with shares of Bank of America (BAC) falling sharply after the financial giant reported third quarter earnings that beat analyst estimates but on weaker than expected revenues.

Banking giant Wells Fargo (WFC) also posted a steep loss after reporting weaker than expected third quarter earnings, although its revenues came in above estimates.

Shares of UnitedHealth (UNH) also came under pressure even though the health insurer reported better than expected third quarter results and raised its full-year guidance.

Retail stocks came under pressure over the course of the session, with the Dow Jones U.S. Retail Index falling by 1.6 percent after reaching a record intraday during trading on Tuesday.

Considerable weakness also emerged among banking stocks, as reflected by the 1.8 percent drop by the KBW Bank Index. The index continued to give back ground after reaching a nearly four-month closing high on Monday.

Telecom stocks also showed a significantly move to the downside on the day, dragging the NYSE Arca North American Telecom Index down by 1.5 percent.

Biotechnology and commercial real estate stocks also moved notably lower, while strength remained visible among oil service, gold, and airline stocks.

Commodity, Currency Markets

Crude oil futures are slumping $1.44 to $39.60 a barrel after climbing $0.84 to $41.04 a barrel on Wednesday. Meanwhile, after jumping $12.70 to $1,907.30 an ounce in the previous session, gold futures are sliding $8.30 to $1,899 an ounce.

On the currency front, the U.S. dollar is trading at 105.18 yen versus the 105.17 yen it fetched at the close of New York trading on Wednesday. Against the euro, the dollar is valued at $1.1704 compared to yesterday’s $1.1746.


Asian stocks fell on Thursday as fading hopes of U.S. fiscal stimulus, Brexit woes, the U.S.-China tussle and fresh lockdown restrictions in parts of Europe dented risk appetite.

Chinese shares finished modestly lower as the latest inflation data underscored the challenges still facing the economy. The producer price index fell for an eighth straight month on an annual basis, while consumer prices grew more slowly than expected, data showed earlier in the day.

Meanwhile, the People's Bank of China said in a statement that it has injected 500 billion yuan ($74.48 billion) worth of medium-term loans into the banking system and kept borrowing costs unchanged for the sixth straight month.

China’s Shanghai Composite Index fell 8.60 points, or 0.3 percent, to 3,332.18, while Hong Kong's Hang Seng Index tumbled 508.55 points, or 2.1 percent, to 24,158.54 as Chinese President Xi Jinping disliked youth performance in Hong Kong and Macau and advised them to relocate to the mainland.

Japanese shares retreated as Europe's Covid-19 infection rate continued to increase and U.S. Treasury Secretary Steven Mnuchin downplayed the chances of striking a stimulus deal before the presidential election.

The Nikkei 225 Index shed 119.50 points, or 0.5 percent, to finish at 23,507.23, with healthcare and telecommunication stocks pacing the decliners. The broader Topix ended down 12.11 points, or 0.7 percent, at 1,631.79.

Market heavyweight SoftBank Group and drug maker Takeda Pharmaceutical both lost around 2 percent. In the tech space, Advantest fell 2 percent and Screen Holdings gave up 1.4 percent.

Meanwhile, Australian markets advanced as RBA Governor Philip Lowe fueled expectations of an interest rate cut as early as next month and data showed the country's labor force outperformed expectations for the second consecutive month.

The unemployment rate in Australia came in at a seasonally adjusted 6.9 percent in September up from 6.8 percent in August but below expectations for 7.1 percent.

The Australian economy shed 29,500 jobs last month compared to forecasts for a loss of 35,000 jobs following the addition of 111,000 in the previous month.

The benchmark S&P/ASX 200 Index gained 31.10 points, or 0.5 percent, to finish at 6,210.30, while the broader All Ordinaries Index ended up 26.80 points, or 0.4 percent, at 6,414.20.

Energy stocks followed oil prices higher, with Origin Energy, Oil Search and Santos climbing around 4 percent each. Mining heavyweights BHP and Rio Tinto rose 2 percent and 1 percent, respectively, while the big four banks rose between 0.3 percent and 0.9 percent.

Seoul stocks fell for a third straight session, with a jump in domestic coronavirus cases and a continued stalemate between Congress and the White House over a U.S. coronavirus stimulus package keeping investors nervous. The benchmark Kospi dropped 19.27 points, or 0.8 percent, to 2,361.21.

South Korea has reported 110 new cases of the virus, half of them linked to a hospital in Busan. Market bellwether Samsung Electronics dipped 1.5 percent and internet portal giant Naver lost 2 percent, while steelmaker POSCO added 2.2 percent.


European stocks have fallen sharply on Thursday as surging coronavirus infections across Europe as well as tightened restrictions to battle the second wave of infections dampened the prospects for economic recovery.

Europe now has over 7.2 million confirmed cases of the virus, according to the World Health Organization.

The European Commission warned that EU governments were unprepared for the new surge of Covid-19 infections and urged states to adopt a common strategy for the new phase of the pandemic.

"While the evolution of the pandemic is getting back to March levels, our state of preparedness is not," said European Commission Vice President Margaritis Schinas.

Fading hopes for more U.S. fiscal stimulus before the presidential election, rising U.S.-China tensions and worries over Brexit talks have also dented investors' appetite for risk.

While the German DAX Index has plunged by 3 percent, the French CAC 40 Index is down by 2.6 percent and the U.K.’s FTSE 100 Index is down by 2.2 percent.

Banks Commerzbank, BNP Paribas and Credit Agricole have moved notably lower, tracking a decline in bond yields.

Swiss drug maker Roche Group has also shown a significant move to the downside after reporting a drop in third quarter sales.

French advertising company Publicis Groupe has also come under pressure after its third quarter net revenue fell 9.1 percent to 2.34 billion euros from 2.58 billion euros a year ago.

Budget carrier Ryanair has also moved lower after it cut the number of its winter flights by a third because of Covid flight restrictions across the EU.

BP Plc and Royal Dutch Shell are also posting steep losses as oil prices fall on rising concerns about the global economic outlook.

Meanwhile, Italy's Banco BPM has risen after it signed a non-disclosure agreement to explore a potential tie-up with France's Credit Agricole.

Chemicals and biotechnology company Lonza Group has also advanced after it forecast double-digit sales growth as part of its 2023 group guidance.

U.S. Economic Reports

First-time claims for U.S. unemployment benefits unexpectedly increased in the week ended October 10th, according to a report released by the Labor Department on Thursday.

The report said initial jobless claims climbed to 898,000, an increase of 53,000 from the previous week’s revised level of 845,000.

Economists had expected jobless claims to edge down to 825,000 from the 840,000 originally reported for the previous week.

The Labor Department said the less volatile four-week moving average also inched up to 866,250, an increase of 8,000 from the previous week’s revised average of 858,250.

A separate report released by the Labor Department on Thursday showed import prices in the U.S. increased in line with economist estimates in the month of September.

The Labor Department said import prices rose by 0.3 percent in September after jumping by an upwardly revised 1.0 percent in August.

Economists had expected import prices to rise by 0.3 percent compared to the 0.9 percent increase originally reported for the previous month.

The report also said export prices climbed by 0.6 percent following the 0.5 percent advance seen in August. Export prices were expected to increase by 0.4 percent.

The Federal Reserve Bank of New York also released a report showing growth in New York manufacturing activity slowed by more than expected in the month of October.

The New York Fed said its general business conditions index slid to 10.5 in October from 17.0 in September. While a positive reading still indicates growth in regional manufacturing activity, economists had expected the index to show a much more modest drop to 15.0.

Meanwhile, a report released by the Federal Reserve Bank of Philadelphia on Thursday showed a significant acceleration in the pace of growth in regional manufacturing activity in the month of October.

The Philly Fed said its diffusion index for current activity jumped to 32.3 in October from 15.0 in September, with a positive reading indicating growth in regional manufacturing. Economists had expected the index to edge down to 14.0.

Atlanta Federal Reserve President Raphael Bostic is due to give a presentation on “Equity, the Economy and Benefits Cliffs” and to participate in a panel at the virtual “Reframing Benefits Cliffs: Solutions for an Inclusive Recovery” summit at 9 am ET.

At 11 am ET, the Energy Information Administration is scheduled to release its report on oil inventories in the week ended October 9th.

Crude oil inventories are expected to tumble by 3.4 million barrels after inching up 0.5 million barrels in the previous week.

Federal Reserve Board of Governors Vice Chair for Supervision Randal Quarles is also due to speak about the “Response to the COVID Threat” at the virtual Institute of International Finance Annual Meeting at 11 am ET.

Also at 11 am ET, Dallas Federal Reserve President Robert Kaplan is scheduled to participate in a moderated Q&A session at the virtual U.S. India Chamber of Commerce Annual Small Business Forum.

Additionally, the Treasury Department is due to announce the details of this month’s auction of twenty-year bonds at 11 am ET.

At 11:10 am ET, St. Louis Federal Reserve Bank President James Bullard is scheduled to speak about “Monetary Policy and Heterogeneity” at a virtual Federal Reserve Board of Governors Conference.

Richmond Federal Reserve President Thomas Barkin is due to speak about “What's Ahead? Learning from the CFO Survey” at an Economic Club of New York webinar at 2 pm ET.

At 5 pm ET, Minneapolis Federal Reserve President Neel Kashkari is scheduled to speak at a NYU Stern Center for Global Economy and Business webinar event.

Stocks In Focus

Shares of Fastly (FSLY) are moving sharply lower in pre-market trading after the cloud computing services provider lowered its third quarter revenue guidance, saying usage of its platform by its largest customer did not meet expectations.

Aluminum producer Alcoa (AA) is also seeing significant pre-market weakness despite reporting a narrower than expected third quarter loss on revenues that exceeded analyst estimates.

On the other hand, shares of Sleep Number (SNBR) are likely to see initial strength after the mattress retailer reported better than expected third quarter results and provided upbeat guidance.

Pharmacy chain operator Walgreens (WBA) may also move to the upside after reporting fiscal fourth quarter results that exceeded analyst estimates and increasing its quarterly dividend.
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